<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1994
--------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
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Commission File Number 0-8707
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NATURE'S SUNSHINE PRODUCTS, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
UTAH 87-0327982
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
75 EAST 1700 SOUTH, PROVO, UTAH 84606
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (801) 342-4407
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
-------------------------------
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No__
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant on March 20, 1995 was approximately $104,000,000.
The number of shares of Common Stock, without par value, outstanding on
March 20, 1995 was 12,275,343 shares.
Documents Incorporated by Reference:
Proxy Statement for May 15, 1995 Annual Meeting of Shareholders (Part III
of this Report).
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<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
The Registrant was incorporated in Utah in 1976 under the name of Amtec
Industries. In 1982, the Registrant, by an amendment to its articles of
incorporation, changed its name to Nature's Sunshine Products, Inc. Executive
offices are located at 75 East 1700 South, Provo, Utah 84606.
Nature's Sunshine Products, Inc. and its subsidiaries (hereinafter referred
to collectively as the "Company") is primarily engaged in the manufacturing and
marketing of nutritional and personal care products. The Company sells its
products to a sales force of independent distributors who use the products
themselves or resell them to other distributors or consumers.
The Company markets its products directly in the United States, Mexico,
Canada, Colombia, United Kingdom, Venezuela, Japan, Brazil, Costa Rica and
Malaysia. The Company also exports its products to numerous other countries,
including Australia, New Zealand, Norway and the Philippines.
FINANCIAL INFORMATION BY BUSINESS SEGMENT
The Company is principally engaged in one line of business, i.e., the sale
of health-related nutritional and personal care products. Information, for each
of the Company's last three fiscal years, with respect to the amounts of revenue
from sales to unaffiliated customers, operating profit or loss and identifiable
assets of this segment is set forth under Item 6 of this Report and such
information is incorporated by this reference and made a part hereof.
NARRATIVE DESCRIPTION OF BUSINESS
Since 1972, the principal business of the Company and its predecessors has
been the manufacture and sale of nutritional and personal care products. The
Company's nutritional products include herbs, vitamins, beverages, diet and
weight loss plans, and mineral and food supplements. Personal care products
include natural skin, hair and beauty care products. The Company also sells a
line of homeopathic remedies as well as other products. Additional information
with respect to the Company's business is set forth below:
PRODUCTS AND MANUFACTURING
The Company is engaged in the manufacture and distribution of nutritional
and personal care products which are primarily sold directly through independent
distributors who sell the Company's products directly to consumers, other
distributors, or use the products themselves. The Company purchases herbs and
other raw materials in bulk, and after quality control testing, encapsulates,
tabulates or concentrates them, and then packages them for shipment. Most of
the Company's products are manufactured at its facilities in Spanish Fork,
Utah. Certain of the
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Company's personal care products are manufactured for the Company, in accordance
with its specifications and standards, by contract manufacturers. The Company
has implemented stringent quality control procedures to verify that the contract
manufacturers have complied with its specifications and standards.
DISTRIBUTION AND MARKETING
The Company endeavors to attract independent distributors who will
effectively explain and market the Company's products, through direct selling
techniques to consumers and attract and sponsor other distributors. The Company
attempts to maintain a high level of motivation, morale and enthusiasm among its
independent distributors through a combination of high quality competitively
priced products, product support, financial incentives, sales conventions,
automobile allowances, health insurance, travel programs and a variety of
training programs, publications and promotional materials.
The Company's domestic product sales are shipped directly from its
manufacturing facilities located in Spanish Fork, Utah, as well as from its
regional warehouses located in Columbus, Ohio; Dallas, Texas and Atlanta,
Georgia. Each subsidiary operation is responsible to maintain an adequate
inventory to supply its customers. Demand for the Company's products is created
principally by approximately 212,000 active members (at December 31, 1994) of
the Company's independent distributor sales force. A person who wishes to join
the Company's independent sales force begins as a "Distributor". One can become
a Distributor only by applying to the Company under the sponsorship of someone
who is already a member of the independent sales force. A Distributor
interested in earning additional income by committing more time and effort to
selling the Company's products may be appointed to "Manager" status.
Appointment as a Manager is dependent upon attaining certain purchase volume
levels and demonstrating leadership abilities.
The Company primarily sells its products to Managers who numbered
approximately 8,400 at December 31, 1994. Managers resell the products they
purchase from the Company to the Distributors in their sales group, to consumers
or use the products themselves. Many Distributors sell on a part-time basis to
friends or associates or consume the Company's products themselves.
For domestic sales, the Company generally sells its product on a cash or
credit card basis. For certain of the Company's international operations, the
Company uses independent distribution centers and offers credit terms consistent
with industry standards.
The Company pays its Managers sales commissions ("overrides") and cash
discounts based upon the amount of personal product purchases as well as their
sales group volume. Reference is made to Item 8 contained herein for the total
commissions and discounts ("Volume Incentives") paid by the Company for the
years ended December 31, 1992 through 1994. In addition, Managers who qualify
by reason of sustaining certain levels of monthly product purchases are eligible
for additional incentive programs including automobile allowances, medical and
dental insurance and travel. The Company's marketing personnel travel
extensively throughout the year directing seminars in areas where distributors
are located.
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SOURCE AND AVAILABILITY OF RAW MATERIALS
Raw materials used in the manufacture of the Company's products are
available from a number of suppliers, and the Company has not experienced any
major difficulty in obtaining adequate sources of supply. The Company attempts
to assure the availability of many of its raw materials by contracting for its
annual requirements in advance. In the past, the Company has found alternative
sources of supply of raw materials when needed, and therefore, believes it will
be able to do so in the future.
TRADEMARKS AND TRADE NAMES
The Company has obtained trademark registrations of its basic trademarks,
"Nature's Sunshine", and the landscape logo for all of its product lines, as
well as the trademark "Nature's Spring" for its water purifier. The Company
also owns numerous trademark registrations in the United States and in many
foreign countries.
SEASONALITY
The business of the Company does not reflect significant seasonality.
WORKING CAPITAL ITEMS
The Company maintains a substantial inventory of raw materials and finished
products to meet the delivery requirements of its independent distributors.
DEPENDENCE UPON CUSTOMERS
The Company is not dependent upon a single customer or a few customers, the
loss of which would have a material adverse effect on its business.
BACKLOG
Orders for the Company's products are typically shipped within 24 hours
after receipt so that there is no significant amount of backlog at any given
time.
GOVERNMENT CONTRACTS
The Company is not a party to any contracts with the government which may
be subject to renegotiation or termination.
COMPETITION
The Company's products are sold in domestic and foreign markets in
competition with companies, some of which have greater sales volumes and
financial resources than the Company, and which sell brands that are, through
advertising and promotions, better known to consumers. The Company competes
in the health-related nutritional and personal care industry against
4
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companies which sell heavily advertised and promoted products through retail
stores as well as against other direct selling companies. For example, the
Company competes against numerous large manufacturers and retailers of
nutritional and personal care products which are distributed through
supermarkets, department stores, drug stores, health food stores, beauty salons,
etc. In addition to its competition with these manufacturers and retailers, the
Company competes for product sales and independent distributors with many other
direct sales companies including Shaklee, Amway, Avon, Mary Kay and Nu Skin.
The Company is one of the world's largest distributors of encapsulated and
tableted herbal products. The principal competitors in the encapsulated,
tableted herbal market include Herbalife (California), Nature's Herbs (Utah),
Nature's Way (Utah) and Sunrider (California).
The Company believes that the principal methods of competition in the
direct sales marketing of nutritional and personal care products are brand name,
price and quality. In addition, the recruitment, training, financial and travel
incentives for the independent sales force are important factors.
RESEARCH AND DEVELOPMENT
The Company conducts its research and development activities at its
manufacturing facilities located in Spanish Fork, Utah. Principal emphasis of
the Company's research and development activities is the development of new
products and improvement of existing products for domestic and foreign markets.
The amount excluding capital expenditures spent during each of the last three
years on Company sponsored research and development activities was approximately
$800,000 , $648,000 and $509,000, in 1994, 1993, and 1992, respectively. The
Company has no customer sponsored research.
COMPLIANCE WITH ENVIRONMENTAL LAWS AND REGULATIONS
The nature of the Company's business has not required any material capital
expenditures to comply with Federal, state or local provisions enacted or
adopted regulating the discharge of materials into the environment. No material
expenditures to meet such provisions are anticipated. Such regulatory
provisions have not had any material effect upon the Company's earnings or
competitive position.
REGULATION
One or more of the following agencies regulates the formulation, labeling
and advertising of each of the Company's major product groups: the Federal Food
and Drug Administration ("FDA"), the Federal Trade Commission ("FTC"), the
Consumer Product Safety Commission ("CPSC") and various agencies of the
countries and states into which the Company's products are shipped or sold. In
addition, the Company's distribution and sales program is, like that of other
companies operating in interstate commerce, subject to the jurisdiction of the
FTC and a number of other Federal and state agencies. Various state agencies
regulate multi-level distribution activities.
5
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As a result of the Company's efforts to comply with applicable statutes and
regulations, the Company has from time to time reformulated, eliminated or
relabeled certain of its products and revised certain provisions of its sales
and marketing program. The Company believes it is in material compliance with
the applicable Federal and state rules and regulations regulating its products
and marketing program.
EMPLOYEES
The approximate number of persons employed by the Company as of
December 31, 1994, was 720. The Company believes that its relations with its
employees are satisfactory.
INTERNATIONAL OPERATIONS
The Company's direct sales of nutritional and personal care products are
established internationally in Mexico, Canada, Colombia, United Kingdom,
Venezuela, Japan, Brazil, Costa Rica and Malaysia. The Company also exports its
products to numerous other countries, including Australia, New Zealand, Norway
and the Philippines. Information, for each of the Company's last three years,
with respect to the amounts of revenue, operating income, and identifiable
assets attributable to domestic and international operations is set forth in
Note 9 of the Notes to Consolidated Financial Statements appearing in Item 8 of
this Report and such information is incorporated herein by reference and made a
part hereof.
The Company's international operations are conducted in a manner
substantially the same as those conducted domestically; however, in order to
conform to local variations, economic realities, market customs, consumer habits
and regulatory environments, differences exist in the products and in the
distribution and marketing programs.
The Company's international operations are subject to many of the same
risks faced by the Company's domestic operations. These include competition and
the strength of the local economy. In addition, international operations are
subject to certain risks inherent in carrying on business abroad, including
foreign regulatory restrictions, fluctuations in monetary exchange rates,
import-export controls and the economic and political policies of foreign
governments. The importance of these risks increases as the Company's
international operations grow and expand; however, the Company is not presently
aware of any significant political or other pending or proposed actions related
to its international operations which have a material impact on its business.
However, the Company's operations in Mexico have been affected by the
devaluation of the Peso and the business uncertainties resulting therefrom.
ITEM 2. PROPERTIES
The Company's corporate offices are located in two adjacent office
buildings in Provo, Utah. The facilities are leased from an unaffiliated third
party and consist of approximately 50,000 square feet of which approximately
10,000 square feet are subleased to an unaffiliated third party. The lease
agreement for the main building, comprising approximately 32,000 square feet, is
for a 5 1/2 year term (of which 2 1/2 years remain) and grants the Company an
option to purchase the premises. The lease for the second building,
approximately 18,000 square feet, expires in six years.
6
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The Company's principal manufacturing facilities are housed in a building
owned by the Company, of approximately 136,000 square feet, located on
approximately ten acres in Spanish Fork, Utah. The building was constructed to
the Company's specifications in 1977. The building has been expanded on several
occasions and presently includes approximately 34,000 square feet of office
space and 102,000 square feet of manufacturing and warehouse space. The
building is suited to the Company's business, and is presently being utilized at
approximately 90 percent of its productive capacity. The Company is in the
process of evaluating the expansion of its manufacturing facilities. The
preliminary cost estimate for this expansion is approximately $4,000,000. The
Company also leases a 40,000 square foot building in Spanish Fork to supplement
the warehousing of finished goods inventory.
In addition to its facilities in Spanish Fork and Provo, the Company leases
other properties used primarily as distribution warehouses which are located in
Columbus, Ohio; Dallas, Texas; Atlanta, Georgia; as well as Mexico, Canada,
United Kingdom, Colombia, Japan, Brazil, Venezuela, Malaysia and Costa Rica.
Management believes that these facilities are suitable for their respective uses
and are, in general, adequate for the Company's present needs.
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings are presently pending to which the Company or
any of its property is subject, other than ordinary routine litigation
incidental to the Company's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ National Market System
(symbol NATR). The information in the table below reflects the actual high and
low sales prices of the Company's stock for 1994 and 1993 and has been restated
to reflect the ten percent stock dividend declared in 1995.
<TABLE>
<CAPTION>
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Market Prices Market Prices
1994 HIGH LOW 1993 HIGH LOW
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<S> <C> <C> <C> <C> <C>
First Quarter 16 3/8 10 First Quarter 13 3/8 8 3/8
Second Quarter 14 9/16 11 9/16 Second Quarter 11 1/8 7 5/8
Third Quarter 14 5/16 11 3/8 Third Quarter 11 3/8 8 3/8
Fourth Quarter 14 11 1/8 Fourth Quarter 11 5/8 8 3/4
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</TABLE>
There were approximately 800 shareholders of record as of March 9, 1995.
Since the first quarter of 1989, the Company has paid 26 consecutive quarterly
cash dividends.
7
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ITEM 6. SELECTED FINANCIAL DATA
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
DOLLAR AMOUNTS IN THOUSANDS EXCEPT FOR PER-SHARE INFORMATION
<TABLE>
<CAPTION>
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INCOME STATEMENT DATA
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Selling, General
Sales Cost of Volume & Administrative Operating Other Income Before Net
Revenue Goods Sold Incentives Expenses Income Income Income Taxes Income
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994 $160,901 $30,839 $74,163 $41,691 $14,208 $ 303 $14,511 $8,448
1993 127,194 24,210 59,741 31,747 11,496 783 12,279 7,455
1992 101,044 18,478 46,433 27,644 8,489 1,396 9,885 5,919
1991 72,605 13,962 33,427 18,685 6,531 716 7,247 4,622
1990 60,069 12,353 27,660 15,089 4,967 843 5,810 3,600
1989 52,082 10,294 24,026 11,997 5,765 634 6,399 3,958
1988 44,516 8,721 20,580 10,465 4,750 369 5,119 3,317
1987 38,184 7,510 18,145 9,118 3,411 316 3,727 2,042
1986 31,072 6,514 14,999 8,225 1,334 17 1,351 775
1985 29,399 7,551 14,070 7,100 678 2 680 289
</TABLE>
<TABLE>
<CAPTION>
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BALANCE SHEET DATA
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Working Current Property, Plant & Total Long-Term Shareholders'
Capital Ratio Inventories Equipment, Net Assets Debt Equity
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<S> <C> <C> <C> <C> <C> <C> <C>
1994 $18,798 2.06:1 $17,278 $9,918 $52,458 $ --- $33,279
1993 14,223 2.16:1 11,171 9,672 41,534 --- 28,850
1992 11,125 2.19:1 9,367 8,917 33,987 --- 23,924
1991 10,242 2.35:1 6,523 7,500 27,420 --- 19,614
1990 9,570 2.89:1 4,836 6,885 22,004 11 16,543
1989 7,740 2.47:1 3,747 6,384 20,054 24 14,423
1988 6,939 2.64:1 3,271 5,964 17,538 36 12,855
1987 3,783 1.84:1 2,780 5,797 14,582 239 9,460
1986 2,293 1.74:1 2,661 5,715 11,682 645 7,400
1985 1,653 1.60:1 2,876 6,044 11,223 862 7,101
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(CONTINUED NEXT PAGE)
</TABLE>
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<TABLE>
<CAPTION>
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COMMON SHARE SUMMARY*
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Cash Dividends Net Income Book Value Weighted
Per Share (1) Per Share Per Share (2) Average Shares
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<S> <C> <C> <C> <C>
1994 $.18 $.67 $2.72 12,519,486
1993 .18 .60 2.36 12,406,906
1992 .14 .48 1.95 12,370,491
1991 .11 .38 1.61 12,307,605
1990 .10 .29 1.36 12,248,996
1989 .10 .32 1.18 12,358,320
1988 .04 .26 1.03 12,623,314
1987 -- .17 .80 12,007,361
1986 -- .06 .63 12,141,875
1985 -- .02 .54 13,202,508
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</TABLE>
<TABLE>
<CAPTION>
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OTHER INFORMATION
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Return on Square Footage
Shareholders' Return on Number of of Property Number of
Equity (3) Assets (4) Managers in Use Employees
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<S> <C> <C> <C> <C> <C>
1994 27.2% 18.0% 8,404 346,747 718
1993 28.3 19.6 6,328 315,772 588
1992 27.2 19.3 6,150 244,789 443
1991 25.6 18.7 4,866 195,165 344
1990 23.3 17.1 3,798 161,765 281
1989 29.0 21.1 2,999 161,265 278
1988 29.7 20.7 2,645 157,765 247
1987 24.2 15.6 2,502 150,149 218
1986 10.7 6.8 2,368 150,149 208
1985 4.1 2.5 1,845 159,499 196
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<FN>
* The common share information has been adjusted to reflect the ten percent
stock dividend declared in 1995.
1 The Company expects to continue paying cash dividends.
2 Year end shareholders' equity divided by actual shares outstanding at the
end of each year.
3 Net income dividend by average shareholders' equity.
4 Net income divided by average total assets.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SALES REVENUE
Consolidated sales revenue for the year ended December 31, 1994, was $160.9
million compared to $127.2 million in 1993, an increase of 27 percent. Sales
revenue increased 26 percent in 1993 compared to $101.0 million reported in
1992. The increases in revenue are directly related to the growth of the
Company's independent sales force, international growth, and the continued
expansion of the nutritional products market. Sales revenue for 1992 included
approximately $3.0 million of sales from a subsidiary, Sunburst International,
which was sold in the first quarter of 1993.
The Company distributes its products to consumers through an independent
sales force comprised of managers and distributors. Active managers totalled
8,404, 6,328 and 6,150 for 1994, 1993 and 1992, respectively. Active
distributors totalled approximately 212,000, 144,000, and 98,000 for 1994, 1993
and 1992, respectively.
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Price increases of approximately three and five percent went into effect on
April 1, 1994 and 1993, respectively, and resulted in greater sales revenue for
those years. A price increase of approximately three percent, primarily driven
by increased raw material costs, is scheduled to become effective on April 1,
1995. Management believes that this price increase will be acceptable to its
sales force and result in increased sales revenue.
Sales revenue, related to the Company's domestic operations, increased
approximately 20 percent for both 1994 and 1993. However, domestic sales from
continuing operations adjusted for the sales of Sunburst International, which
was sold during the first quarter of 1993, actually increased approximately 25
percent in 1993. International sales revenue increased approximately 43 percent
and 46 percent in 1994 and 1993, respectively. International sales revenue
increased approximately $15.1 million in 1994. The Company's operations in
Mexico contributed increases of $3.8 million and $11.3 million in 1994 and 1993,
respectively. International sales revenue includes export sales to countries
where the Company does not have subsidiary operations.
COSTS AND EXPENSES
The Company's total costs and expenses, which include cost of goods sold,
volume incentives, and selling, general and administrative expenses, are
identified as a percentage of sales in the table below:
<TABLE>
<CAPTION>
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Year Ended December 31 1994 1993 1992
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<S> <C> <C> <C>
Cost of goods sold 19.2% 19.0% 18.3%
Volume incentives 46.1 47.0 45.9
Selling, general and
administrative expenses 25.9 25.0 27.4
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91.2% 91.0% 91.6%
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</TABLE>
COST OF GOODS SOLD
Cost of goods sold increased slightly, as a percent of sales in 1994, as
the result of disproportionately high import costs for the Company's subsidiary
in Venezuela. Management expects lower import costs for Venezuela during 1995
and subsequent years as the result of greater efficiencies.
Cost of goods sold increased slightly as a percent of sales in 1993,
primarily as the result of the introduction of certain new products in the
Company's subsidiary in Mexico. The Company also experienced higher costs of
goods sold, as a percent of sales, in its Colombian subsidiary as the result of
competitive pricing. The lower cost of goods sold, as a percent of sales, in
1992 was the result of increased unit sales volumes over the prior year.
Management believes that cost of goods sold will decrease slightly as a percent
of sales during 1995.
VOLUME INCENTIVES
Volume incentives are a significant part of the Company's direct sales
marketing program and represent payments made to its independent sales force.
These payments are designed to provide incentives for reaching higher sales
levels and to encourage organizational development.
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Total volume incentives decreased slightly during 1994 as a percent of sales, as
the result of lower relative volume incentives in the Company's newer
operations. During 1993, volume incentives increased as a percent of sales, as
the result of changes to the domestic marketing plan as well as anticipated
increases in Mexico, reflecting maturity of the marketing plan. Management
expects volume incentives to decrease slightly as a percent of sales during 1995
since the Company's newer operations are expected to generate increased sales
for the year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
In addition to typical selling and administrative expenses, this expense
category includes costs for research and development, distribution, as well as
incentive programs such as the Company's conventions.
Selling, general and administrative expenses increased as a percent of
sales during 1994 as the result of incremental costs incurred in the Company's
newest operations in Japan and Brazil which totalled approximately $3.6 million.
The decrease in selling, general and administrative expenses during 1993, as a
percent of sales, was primarily the result of increased management focus on
controlling expenses. Additionally, the Company did not have continued expenses
from a subsidiary, Sunburst International, which was sold during the first
quarter of 1993.
OTHER INCOME AND EXPENSE
<TABLE>
<CAPTION>
Other income (expense) consists of the following (in thousands):
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Year Ended December 31 1994 1993 1992
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<S> <C> <C> <C>
Interest and other income $503 $761 $ 867
Gain on sale of subsidiaries -- -- 700
Interest expense (46) (1) (54)
Foreign exchange loss (745) (46) (117)
Minority interest 591 69 ---
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$303 $783 $1,396
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</TABLE>
INTEREST AND OTHER INCOME
Interest and other income is earned principally from investments of excess
operating cash balances. Investment income will vary depending upon the rate of
interest, the investment instruments available and the need for cash in the
Company's operations. It is management's policy to invest only in high-grade
investments. Interest and other income decreased during 1994 primarily as the
result of the write down of certain other long-term assets.
GAIN ON SALE OF SUBSIDIARIES
In the fourth quarter of 1992, the Company recognized a gain before taxes
of $700,005 on the sale of its subsidiaries in Australia and New Zealand. The
subsidiaries were sold to local management, and the Company agreed to continue
to supply its products to these markets.
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FOREIGN EXCHANGE GAIN (LOSS)
Because of its operations outside of the United States, the Company is
subject to realized and unrealized foreign exchange gains and losses. The
Company experienced exchange losses of approximately $745,000 during 1994. The
losses were primarily related to the Company's operations in Mexico and the
devaluation of the Peso.
MINORITY INTEREST
The Company eliminates the minority interest in its subsidiaries which are
not wholly owned. Accordingly, the Company eliminated approximately $591,000 of
losses reported by subsidiaries in 1994.
INCOME TAXES
The Company's effective tax rate was 41.8, 39.3 and 40.1 percent for 1994,
1993, and 1992, respectively. The increase in the effective tax rate for 1994
was primarily related to losses in Japan and Brazil for which the Company did
not record a tax benefit in the current year.
INTERNATIONAL OPERATIONS
Sales revenue of the Company's international subsidiaries, including export
sales revenue, totaled $50.1 million in 1994, which is an increase of
approximately 43 percent over 1993. Sales revenue was $34.9 million and $24.0
million in 1993 and 1992, respectively. The Company's newer subsidiary
operations in Japan, Brazil and Venezuela contributed approximately $6.6 million
to the increase in sales revenue in 1994. Mexico contributed increases of
approximately $3.8 and $11.3 million in 1994 and 1993, respectively, to the
total international sales increase.
INVENTORIES
Consolidated inventories increased approximately $6.1 million or 55 percent
in 1994, compared to an increase of $1.8 million or 19 percent in 1993. These
increases resulted primarily from an increase in the level of inventory, both
finished goods and raw materials, the Company maintains due to increased sales,
the continued growth of the Company's existing international operations and the
addition of new subsidiaries, as well as the introduction of new products.
ACCOUNTS RECEIVABLE
The balance of accounts receivable increased approximately $.8 million in
1994 and $1.4 million in 1993. These increases are primarily related to the
Company's international operations. The Company allows its independent
distribution centers certain amounts of credit which are secured by monthly
commissions earned by the centers.
SHORT-TERM DEBT
During 1994, the Company established operating lines of credit in Japan and
Brazil to facilitate payment of start up and initial operating expenses.
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CUMULATIVE TRANSLATION ADJUSTMENT
The balance of cumulative foreign currency translation adjustments
decreased approximately $2.1 million primarily as the result of the devaluation
of the Mexican peso.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased approximately $2.5 million during
1994. The increase was the result of cash generated by operations and an
increase in short-term liabilities.
Working capital was used during 1994 to purchase approximately $2.6 million
of manufacturing and data processing equipment. The Company paid approximately
$2.2 million in cash dividends. Volume incentive payments increased
approximately $12.0 million during 1994, primarily as the result of increased
sales. Payments to suppliers and employees increased approximately $20.2 million
as a result of higher levels of inventory and production to support higher
levels of sales, as well as increased employment-related costs. The Company is
in the process of evaluating the expansion of its manufacturing facility. The
preliminary cost estimate for the expansion is approximately $4.0 million.
Management believes that the Company's stock is an attractive investment
and, pursuant to its previously announced 440,000 share buyback program, may
utilize some of its available cash to purchase up to the remaining balance of
approximately 140,000 shares, should market conditions warrant.
During 1994, loans totalling approximately $305,000 were made to an officer
of the Company. The entire amount including interest at six percent was repaid
during the first quarter of 1994.
During 1993 and 1992, the Company made short-term loans of approximately
$725,000 and $684,000, respectively, to certain officers of the Company.
Approximately $434,000 was used by the officers to purchase Company stock
in the open market. The stock that was purchased has been pledged as
collateral. The loans are payable within 90 days of demand and bear interest at
six percent. The total balance of these loans at December 31, 1994 and 1993, was
approximately $505,000 and $618,000, respectively.
Management believes that future working capital requirements can be
internally funded.
13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Nature's Sunshine Products, Inc.:
We have audited the accompanying consolidated balance sheets of Nature's
Sunshine Products, Inc. (a Utah corporation) and subsidiaries as of December 31,
1994 and 1993, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Nature's Sunshine
Products, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Salt Lake City, Utah
February 14, 1995
14
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Year Ended December 31 1994 1993 1992
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales Revenue $160,900,746 $127,194,065 $101,043,770
- ----------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of goods sold 30,838,844 24,209,627 18,477,581
Volume incentives 74,163,142 59,741,423 46,432,638
Selling, general and administrative expenses 41,690,752 31,746,996 27,644,390
- ----------------------------------------------------------------------------------------------------
146,692,738 115,689,046 92,554,609
- ----------------------------------------------------------------------------------------------------
Operating Income 14,208,008 11,496,019 8,489,161
- ----------------------------------------------------------------------------------------------------
Other income (expense):
Interest and other income 503,105 760,965 867,448
Interest expense (46,136) (1,185) (54,353)
Foreign exchange loss (744,591) (45,756) (117,004)
Minority interest 590,840 68,820 ---
Gain on sale of subsidiaries --- --- 700,005
- ----------------------------------------------------------------------------------------------------
303,218 782,844 1,396,096
- ----------------------------------------------------------------------------------------------------
Income before income taxes 14,511,226 12,278,863 9,885,257
Provision for income taxes 6,062,935 4,823,925 3,965,798
- ----------------------------------------------------------------------------------------------------
Net Income $ 8,448,291 $ 7,454,938 $ 5,919,459
- ----------------------------------------------------------------------------------------------------
Net Income Per Common Share $ .67 $ .60 $ .48
- ----------------------------------------------------------------------------------------------------
Weighted Average Shares Outstanding 12,519,486 12,406,906 12,370,491
- ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying significant accounting policies and notes to consolidated
financial statements are an integral part of these statements.
15
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
As of December 31 1994 1993
- ------------------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $11,200,550 $ 8,666,915
Accounts receivable, net of allowance for doubtful accounts
of $636,000 in 1994 and $260,000 in 1993 4,787,333 3,945,882
Inventories 17,277,762 11,170,822
Notes receivable due from related parties 205,000 230,853
Prepaid expenses and other 3,092,438 2,482,449
- ------------------------------------------------------------------------------------------------
Total current assets 36,563,083 26,496,921
- ------------------------------------------------------------------------------------------------
Property, plant and equipment, net 9,918,699 9,671,805
Long-term investments 3,053,156 2,370,520
Other assets 2,922,621 2,994,351
- ------------------------------------------------------------------------------------------------
$52,457,559 $41,533,597
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------
Current liabilities:
Short-term debt $ 1,533,042 $ --
Accounts payable 4,472,689 3,344,151
Accrued volume incentives 5,877,083 5,146,806
Accrued liabilities 4,818,173 3,715,583
Income taxes payable 1,064,239 67,292
- ------------------------------------------------------------------------------------------------
Total current liabilities 17,765,226 12,273,832
- ------------------------------------------------------------------------------------------------
Deferred income taxes 971,434 304,181
- ------------------------------------------------------------------------------------------------
Minority Interest 441,684 106,063
- ------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, no par value, authorized 20,000,000 shares,
issued 13,285,913 shares 29,849,452 15,793,991
Retained earnings 9,778,478 17,117,530
Treasury stock, at cost, 1,033,278 and 1,068,091 shares
held in treasury as of Dec. 31, 1994 and 1993, respectively (3,742,495) (3,500,329)
Receivables due from related parties (404,804) (417,730)
Cumulative foreign currency translation adjustments (2,201,416) (143,941)
- ------------------------------------------------------------------------------------------------
Total shareholders' equity 33,279,215 28,849,521
- ------------------------------------------------------------------------------------------------
$52,457,559 $41,533,597
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
The accompanying significant accounting policies and notes to consolidated
financial statements are an integral part of these statements.
16
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Year ended December 31 1994 1993 1992
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK:
Balance at beginning of year $15,793,991 $15,769,300 $15,356,252
Tax benefit related to exercise of stock options 137,655 (7,659) 231,530
Issuance of 15,740, 400 and 600, shares of
treasury stock, respectively 202,433 3,847 8,295
Issuance of 40,367, 4,300 and 47,972 shares of
treasury stock, respectively, on exercise of
stock options 156,754 28,503 173,223
Stock dividend 13,558,619 --- ---
- -----------------------------------------------------------------------------------------------------
Balance at end of year 29,849,452 15,793,991 15,769,300
- -----------------------------------------------------------------------------------------------------
RETAINED EARNINGS:
Balance at beginning of year 17,117,530 11,889,212 7,639,634
Net income 8,448,291 7,454,938 5,919,459
Stock dividend (13,558,619) --- ---
Cash dividends (2,228,724) (2,226,620) (1,669,881)
- -----------------------------------------------------------------------------------------------------
Balance at end of year 9,778,478 17,117,530 11,889,212
- -----------------------------------------------------------------------------------------------------
TREASURY STOCK:
Balance at beginning of year (3,500,329) (3,168,760) (3,157,240)
Purchase of common stock (284,752) (335,129) (49,255)
Cost of treasury stock issued 42,586 3,560 37,735
- -----------------------------------------------------------------------------------------------------
Balance at end of year (3,742,495) (3,500,329) (3,168,760)
- -----------------------------------------------------------------------------------------------------
RECEIVABLES DUE FROM RELATED PARTIES:
Balance at beginning of year (417,730) (430,906) ---
Additions --- --- (430,906)
Reductions 12,926 13,176 ---
- -----------------------------------------------------------------------------------------------------
Balance at end of year (404,804) (417,730) (430,906)
- -----------------------------------------------------------------------------------------------------
CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENTS:
Balance at beginning of year (143,941) (135,247) (224,339)
Foreign currency translation adjustments (2,057,475) (8,694) 89,092
- -----------------------------------------------------------------------------------------------------
Balance at end of year (2,201,416) (143,941) (135,247)
- -----------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $33,279,215 $28,849,521 $23,923,599
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying significant accounting policies and notes to consolidated
financial statements are an integral part of these statements.
17
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from sales revenue $159,447,066 $125,738,138 $ 99,202,561
Cash paid as volume incentives (72,001,642) (59,990,767) (45,320,035)
Cash paid to suppliers and employees (76,589,117) (56,422,459) (46,220,842)
Interest paid (46,136) (1,185) (54,353)
Interest received 370,743 706,551 556,516
Income taxes paid (3,774,000) (2,311,800) (3,388,216)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,406,914 7,718,478 4,775,631
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,589,907) (3,007,996) (2,841,876)
Proceeds from sales of assets --- 137,928 17,061
Purchase of long-term investments (682,636) (481,494) 56,688
Long-term receivables --- --- (51,179)
Payments received on long-term receivables 324,634 751,508 ---
Receivables from sale of subsidiareis --- --- (1,900,000)
Purchase of other assets (1,235,082) (396,785) (721,794)
Payments (additions) short-term related party receivables 75,853 132,596 (154,788)
Receivables due from related parties 12,926 13,176 (430,906)
Minority interest elimination 335,621 106,063 ---
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (3,758,591) (2,745,004) (6,026,794)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of cash dividends (2,228,724) (2,226,620) (1,669,881)
Purchase of treasury stock (284,752) (335,120) (49,255)
Proceeds from short-term debt 1,533,042 --- ---
Proceeds from exercise of stock options 187,335 28,242 210,504
Issuance of treasury stock 214,438 --- ---
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (578,661) (2,533,498) (1,508,632)
- ------------------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATES ON CASH (536,027) (79,599) (78,826)
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,533,635 2,360,377 (2,838,621)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 8,666,915 6,306,538 9,145,159
- ------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 11,200,550 $ 8,666,915 $ 6,306,538
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Reconciliation of Net Income to Net Cash Provided by Operating Activities
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 8,448,291 $ 7,454,938 $ 5,919,459
- ------------------------------------------------------------------------------------------------------------------------------------
Bad debt expense and reserve 839,232 249,039 28,061
Depreciation and amortization 3,064,317 2,080,611 1,617,578
(Gain) loss on sale of assets 3,308 (4,868) 16,269
Increase in accounts receivable, net (1,680,683) (1,713,624) (1,761,667)
Increase in inventories (6,106,940) (2,353,514) (2,844,088)
Increase in prepaid expenses and other (402,423) (579,524) (595,382)
Increase (decrease) in income taxes payable 996,947 (116,279) 102,379
Increase in accrued liabilities and volume incentives 1,832,867 1,380,977 1,676,393
Increase in accounts payable 1,128,538 1,633,377 15,447
Increase (decrease) in deferred income taxes 667,253 (383,560) 475,203
Foreign currency translation adjustment (1,521,448) 70,905 (105,551)
Tax benefit from stock option exercise 137,655 --- 231,530
- ------------------------------------------------------------------------------------------------------------------------------------
Total adjustments (1,041,377) 263,540 (1,143,828)
Net Cash Provided by Operating Activities $ 7,406,914 $ 7,718,478 $ 4,775,631
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying significant accounting policies and notes to consolidated
financial statements are an integral part of these statements.
18
<PAGE>
SIGNIFICANT ACCOUNTING POLICIES
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Nature's
Sunshine Products, Inc. and its majority-owned subsidiaries (the Company).
Intercompany transactions have been eliminated in consolidation.
NET INCOME PER SHARE
Net income per share is based upon the weighted average number of common
shares and common equivalent shares outstanding during the period. Common
equivalent shares consist primarily of stock options, which have a dilutive
effect when applying the treasury stock method.
The Board of Directors declared a ten percent stock dividend, 1,106,507
shares, to shareholders of record February 17, 1995, a four-for-three stock
split to shareholders of record January 13, 1993 and a three-for-two stock split
to shareholders of record February 21, 1992. Weighted average shares outstanding
and all per share amounts included in the consolidated financial statements and
notes reflect the increased number of shares, giving retroactive effect to the
stock dividend and splits.
INCOME TAXES
The Company recognizes a liability or asset for the deferred tax
consequences of temporary differences between the tax bases of assets or
liabilities and their reported amounts in the financial statements. These
temporary differences will result in taxable or deductible amounts in future
years when the reported amounts of the assets or liabilities are recovered or
settled. Foreign and other tax credits are accounted for using the "liability"
method, which reduces income tax expense in the year in which these credits are
generated.
TRANSLATION OF FOREIGN CURRENCIES
The financial statements of the international subsidiaries have been
translated to U.S. dollars in accordance with the provisions of Statement of
Financial Accounting Standards (SFAS) No. 52.
The Company translated the assets and liabilities of its international
operations at rates of exchange in effect at year end, and the consolidated
statements of income were translated at the average rates of exchange for the
year. Gains and losses resulting from translation are accumulated as a separate
component of shareholders' equity. Gains and losses resulting from foreign
currency transactions are included in the consolidated statements of income.
REVENUE RECOGNITION
For domestic sales, the Company generally receives its product sales price
in cash accompanying orders from independent sales force members. For certain of
the Company's international operations, the Company offers credit terms
consistent with industry standards. A
19
<PAGE>
volume incentive payment related to product orders is made in the month
following the sale. Sales and related volume incentives are generally recorded
when the merchandise is shipped. Cash received for unshipped merchandise is
recorded as a liability.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include approximately $4,435,000 and $2,515,000
of short-term investments at December 31, 1994 and 1993, respectively.
For purposes of the statements of cash flows, the Company considers all
highly liquid short-term investments to be cash equivalents, which generally
includes only investments with original maturities of three months or less.
SELLING EXPENSES
Independent sales force members may earn Company-paid attendance at
conventions as well as other travel awards by achieving the required levels of
product purchases within the qualification period. The convention costs and
other travel expenses are accrued over the qualification period as they are
earned. Accordingly, the Company accrued approximately $650,000 and $1,040,000
at December 31, 1994 and 1993, respectively.
RESEARCH AND DEVELOPMENT
All research and development costs are expensed as incurred. Total research
and development costs were approximately $800,000, $648,000, and $509,000 for
1994, 1993 and 1992, respectively.
CASH DIVIDENDS PER COMMON SHARE
The Company declared and paid quarterly cash dividends totalling $.18 per
common share in 1994. The Company has declared a quarterly cash dividend of $.05
per common share to shareholders of record on March 10, 1995 and payable March
24, 1995.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
NOTE 1: INVENTORIES
Inventories are stated at the lower of cost (using the first-in, first-out
method) or market value. The composition of inventories is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
As of December 31 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 6,124,791 $ 4,286,307
Work in process 1,303,024 364,437
Finished goods 9,849,947 6,520,078
- --------------------------------------------------------------------------------
$17,277,762 $11,170,822
- --------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
NOTE 2: PROPERTY, PLANT AND EQUIPMENT
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets. Maintenance and repairs are charged to
expense as incurred, and major improvements are capitalized. Gains or losses on
sales or retirements are included in the consolidated statement of income in the
year of disposition. The composition of property, plant and equipment is as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
As of December 31 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Building and improvements $ 6,223,049 $ 5,621,255
Machinery and equipment 6,537,245 5,754,874
Furniture and fixtures 6,022,243 5,189,485
- --------------------------------------------------------------------------------
$18,782,537 $16,565,614
Accumulated depreciation and
amortization (9,074,501) (7,104,472)
Land 210,663 210,663
- --------------------------------------------------------------------------------
$ 9,918,699 $ 9,671,805
- --------------------------------------------------------------------------------
</TABLE>
NOTE 3: LONG-TERM INVESTMENTS
The following are the aggregate fair values and related gross unrealized
holding gains and losses for securities available for sale and securities held
to maturity at December 31, 1994:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1994
- --------------------------------------------------------------------------------
<S> <C>
Securities available for sale:
Amortized cost $1,993,230
Gross unrealized holding gains 86,020
Gross unrealized holding losses (74,793)
- --------------------------------------------------------------------------------
Aggregate fair value $2,004,457
- --------------------------------------------------------------------------------
Securities held to maturity:
Amortized cost $1,048,699
Gross unrealized holding losses (95,162)
- --------------------------------------------------------------------------------
Aggregate fair value $ 953,537
- --------------------------------------------------------------------------------
</TABLE>
The total net unrealized holding losses on trading securities recognized in
the consolidated statement of income for the year ended December 31, 1994, was
$150,000.
NOTE 4: SHORT-TERM DEBT
During 1994, the Company established bank operating lines of credit in
Japan and Brazil to facilitate the payment of start up and initial operating
expenses. The lines of credit are to be repaid in local currency. The debts are
unsecured and payable at March 31, 1995 and April 30, 1995, respectively. The
weighted interest rate approximates three percent. There was no short-term debt
as of December 31, 1993.
21
<PAGE>
NOTE 5: INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year ended December 31 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $3,843,615 $2,657,051 $1,642,178
State 610,033 446,288 413,800
Foreign 2,275,202 2,104,146 1,434,617
- --------------------------------------------------------------------------------
6,728,850 5,207,485 3,490,595
- --------------------------------------------------------------------------------
Deferred (665,915) (383,560) 475,203
- --------------------------------------------------------------------------------
Total provision for
income taxes $6,062,935 $4,823,925 $3,965,798
- --------------------------------------------------------------------------------
</TABLE>
The domestic and foreign components of income before taxes are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year ended December 31 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $11,053,186 $ 7,889,148 $7,712,531
Foreign 3,458,040 4,389,715 2,172,726
- --------------------------------------------------------------------------------
Total $14,511,226 $ 12,278,863 $9,885,257
- --------------------------------------------------------------------------------
</TABLE>
The provision for income taxes as a percentage of income before taxes
differs from the statutory Federal income tax rate due to the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year ended December 31 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory Federal income tax rate 34.3% 34.2% 34.0%
State income taxes, net of Federal
income tax benefit 2.8 1.6 2.3
Foreign and other tax credits (6.5) (7.5) (7.8)
Net effect of foreign subsidiaries
tax attributes 12.1 12.0 10.9
Other (.9) (1.0) .7
- --------------------------------------------------------------------------------
Effective tax rate 41.8% 39.3% 40.1%
- --------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
The components of and the changes in the deferred income tax assets and
liabilities for the period ended December 31, 1994, are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Deferred
December 31, (Expense) December 31,
1993 Benefit 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 98,205 $194,783 $ 292,988
Inventory unicap adjustment 235,797 37,254 273,051
Foreign tax credits 290,479 (30,717) 259,762
State income taxes 147,275 89,248 236,523
Sale of subsidiary 15,347 --- 15,347
Goodwill amortization 27,138 (27,138) ---
Accrued vacation 115,880 (39,880) 76,000
Inventory obsolescence reserve 106,904 (53,606) 53,298
Foreign currency exchange --- 92,927 92,927
Intangible assets --- 28,668 28,668
Environmental taxes --- 4,603 4,603
- --------------------------------------------------------------------------------------------
Total deferred tax assets $ 1,037,025 $296,142 $1,333,167
- --------------------------------------------------------------------------------------------
Deferred tax liabilities:
Accelerated depreciation $ (689,018) $209,415 $ (479,603)
Gain on sale of subsidiaries (652,188) 160,357 (491,831)
- --------------------------------------------------------------------------------------------
Total deferred tax liabilities $(1,341,206) $369,772 $ (971,434)
- --------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
NOTE 6: STOCK OPTIONS
The Company has from time to time granted certain non-qualified stock
options to officers, directors and key employees. Such grants have been made at
the fair market value of the stock at the date of grant. As of December 31,
1994, the Company has reserved approximately one million treasury shares to
accommodate the exercise of the outstanding options.
Stock option activity for 1992, 1993 and 1994 consisted of the following:
<TABLE>
<CAPTION>
Number of Range of Option
Shares Prices Per Share
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at Dec. 31, 1991(b) 516,196 $ 2.69-$8.06
Options issued 265,173 $ 6.06-$9.55
Options canceled (3,087) $ 2.79-$3.83
Options exercised (a) (72,173) $ 2.69-$3.83
- ----------------------------------------------------------------------------------------------
Options outstanding at Dec. 31, 1992 (b) 706,109 $ 2.69-$9.55
- ----------------------------------------------------------------------------------------------
Options issued 354,420 $ 9.77-$10.00
Options canceled (8,800) $ 8.07-$9.77
Options exercised (a) (4,730) $ 2.79-$7.27
- ----------------------------------------------------------------------------------------------
Options outstanding at Dec. 31, 1993 (b) 1,046,999 $ 2.69-$10.00
- ----------------------------------------------------------------------------------------------
Options issued 270,600 $12.39-$13.18
Options canceled (682) $ 4.55
Options exercised (a) (44,403) $ 2.69-$9.55
- ----------------------------------------------------------------------------------------------
Options outstanding at Dec. 31, 1994 (b) 1,272,514 $ 2.69-$13.18
- ----------------------------------------------------------------------------------------------
<FN>
(a) Shares issued related to the exercise of stock options were issued from
treasury stock.
(b) Options for 698,828, 626,579 and 449,736, shares of common stock were
exercisable on December 31, 1994, 1993 and 1992, respectively.
</TABLE>
NOTE 7: EMPLOYEE BENEFIT PLANS
DEFERRED COMPENSATION PLAN
The Company sponsors a qualified deferred compensation plan (401(k)).
During 1994 and 1993, the Company contributed matching contributions of 100
percent of employee contributions up to a maximum of five percent of the
employee's compensation. During 1992, employer matching contributions were 57
percent of the employee contributions up to a maximum of seven percent of the
employee's compensation. Employer contributions to the plan during 1994, 1993
and 1992 were approximately $284,000, $314,000 and $175,000, respectively.
MANAGEMENT AND EMPLOYEE BONUS PLAN
The Company has a bonus plan that provides for participants to receive
payments based upon the annual increase in revenue and operating income. The
expense related to the plan was approximately $1,912,000, $1,520,000 and
$1,328,000 for 1994, 1993 and 1992, respectively. Hourly employees also
participated in the plan in 1994.
24
<PAGE>
NOTE 8: RELATED PARTY TRANSACTIONS
During 1994, loans totalling approximately $305,000 were made to an officer
of the Company. The entire amount, including interest at six percent, was repaid
during the first quarter of 1994.
During 1993 and 1992, short-term loans of approximately $725,000 and
$684,000, respectively, were made to certain Company officers. The loans have a
90-day call option and bear interest at six percent. Certain officers used the
proceeds of the loans to purchase the Company's stock in the open market. The
stock that was purchased has been pledged as collateral for the loans. After
repayments, the balance of the short-term loans at December 31, 1994 and 1993
was approximately $505,000 and $618,000, respectively.
NOTE 9: INTERNATIONAL OPERATIONS
Sales for domestic and international operations during the past three years
were as follows (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year ended December 31 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic sales $110,839 $ 92,248 $ 77,040
- --------------------------------------------------------------------------------
International:
Mexico 25,991 22,211 10,944
Canada 6,845 5,769 5,210
Colombia 4,177 2,966 245
Great Britain 3,149 2,521 2,810
Venezuela 3,026 58 ---
Japan 1,834 --- ---
Brazil 1,788 --- ---
Malaysia 1,581 226 ---
Export 1,283 1,195 1,184
Costa Rica 388 --- ---
Australia* --- --- 2,308
New Zealand* --- --- 1,303
- --------------------------------------------------------------------------------
Total International 50,062 34,946 24,004
- --------------------------------------------------------------------------------
Total Sales $160,901 $127,194 $101,044
- --------------------------------------------------------------------------------
<FN>
*These subsidiaries were sold in 1992.
</TABLE>
25
<PAGE>
Operating income for domestic and international operations during the past
three years was as follows (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year ended December 31 1994 1993 1992
- --------------------------------------------------------------------------------
Domestic income $ 9,706 $ 7,087 $5,355
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
International:
Mexico 4,007 4,414 2,079
Canada 399 18 126
Colombia 332 (81) (116)
Great Britain 31 25 11
Venezuela 48 (148) ---
Japan (622) --- ---
Brazil (324) --- ---
Malaysia 1 (85) ---
Export 514 266 709
Costa Rica 116 --- ---
Australia* --- --- 226
New Zealand* --- --- 99
- --------------------------------------------------------------------------------
Total international 4,502 4,409 3,134
- --------------------------------------------------------------------------------
Total Operating Income $14,208 $11,496 $8,489
- --------------------------------------------------------------------------------
<FN>
*These subsidiaries were sold in 1992.
</TABLE>
Total assets for domestic and international operations for the past three
years were as follows (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
As of December 31 1994 1993 1992
- --------------------------------------------------------------------------------
Domestic assets $34,973 $ 28,752 $26,365
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
International:
Mexico 5,885 8,520 4,638
Canada 1,598 1,271 1,524
Colombia 1,967 1,431 863
Great Britain 1,028 726 597
Venezuela 1,635 375 ---
Japan 2,677 --- ---
Brazil 1,598 --- ---
Malaysia 810 459 ---
Costa Rica 287 --- ---
- --------------------------------------------------------------------------------
Total international 17,485 12,782 7,622
- --------------------------------------------------------------------------------
Total Assets $52,458 $41,534 $33,987
- --------------------------------------------------------------------------------
</TABLE>
NOTE 10: COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities and equipment used in its operations.
The approximate aggregate commitments under non-cancelable operating leases in
effect at December 31, 1994, were as follows:
26
<PAGE>
- --------------------------------------------------------------------------------
Year ending December 31 Lease Commitments
- --------------------------------------------------------------------------------
1995 $2,061,000
1996 1,673,993
1997 644,202
1998 246,924
1999 and thereafter 1,075,952
- --------------------------------------------------------------------------------
$5,702,071
- --------------------------------------------------------------------------------
The Company incurred expenses of approximately $2,434,000, $1,605,000 and
$1,101,000 in connection with operating leases during 1994, 1993 and 1992,
respectively.
The Company is a defendant in various lawsuits which are incidental to the
Company's business. Management, after consultation with its legal counsel,
believes that any liability as a result of these matters will not have a
material effect upon the Company's results of operations or financial position.
SUMMARY OF QUARTERLY OPERATIONS -- UNAUDITED
DOLLAR AMOUNTS IN THOUSANDS EXCEPT FOR PER-SHARE INFORMATION
<TABLE>
<CAPTION>
Income
Selling, General Other Before Net
Sales Cost of Volume & Administrative Operating Income Income Net Income
1994 Revenue Goods Sold Incentives Expenses Income (Expense) Taxes Income Per Share
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First Qtr $ 37,337 $ 7,049 $17,718 $ 9,503 $ 3,067 $ (29) $ 3,038 $1,701 $.14
Second Qtr 38,312 7,508 17,840 9,359 3,605 377 3,982 2,237 .18
Third Qtr 41,003 7,917 18,690 10,930 3,466 192 3,658 2,221 .18
Fourth Qtr 44,249 8,365 19,915 11,899 4,070 (27) 3,833 2,289 .18
- ------------------------------------------------------------------------------------------------------------------------------------
$160,901 $30,839 $74,163 $41,691 $14,208 $ 303 $14,511 $8,448 $.67
- ------------------------------------------------------------------------------------------------------------------------------------
1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First Qtr $ 29,830 $ 6,024 $13,596 $ 8,143 $ 2,067 $128 $ 2,195 $1,159 $.09
Second Qtr 31,,624 5,828 14,874 7,726 3,196 154 3,350 1,965 .15
Third Qtr 32,455 6,289 15,120 7,657 3,389 148 3,537 2,107 .17
Fourth Qtr 33,285 6,069 16,151 8,221 2,844 353 3,197 2,224 .18
- ------------------------------------------------------------------------------------------------------------------------------------
$127,194 $24,210 $59,741 $31,747 $11,496 $783 $12,279 $7,455 $.60
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information called for by Item 10 is omitted because the Company intends to
file with the Securities and Exchange Commission, not later than 120 days after
the close of the fiscal year ended December 31, 1994, a definitive Proxy
Statement pursuant to Regulation 14A of the Commission.
27
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Information called for by Item 11 is omitted because the Company intends to
file with the Securities and Exchange Commission, not later than 120 days after
the close of the fiscal year ended December 31, 1994, a definitive Proxy
Statement pursuant to Regulation 14A of the Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information called for by Item 12 is omitted because the Company intends to
file with the Securities and Exchange Commission, not later than 120 days after
the close of the fiscal year ended December 31, 1994, a definitive Proxy
Statement pursuant to Regulation 14A of the Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information called for by Item 13 is omitted because the Company intends to
file with the Securities and Exchange Commission, not later than 120 days after
the close of the fiscal year ended December 31, 1994, a definitive Proxy
Statement pursuant to Regulation 14A of the Commission.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) LIST OF FINANCIAL STATEMENTS
The following are filed as part of this Report:
Report of Independent Public Accountants
Consolidated statements of income for the years ended December 31,
1994, 1993 and 1992.
Consolidated balance sheets as of December 31, 1994 and 1993.
Consolidated statements of shareholders' equity for the years ended
December 31, 1994, 1993 and 1992.
Consolidated statements of cash flows for the years ended December
31, 1994, 1993 and 1992.
Significant Accounting Policies
Notes to Consolidated Financial Statements
Summary of Quarterly Operations - Unaudited
28
<PAGE>
(a)(2) LIST OF FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants on Consolidated Financial
Statement Schedule.
Schedule II - Valuation and Qualifying Accounts.
Financial statement schedules other than those listed are omitted
for the reason that they are not required or are not applicable, or
the required information is shown in the financial statements or
notes thereto, or contained in this Report.
(a)(3) LIST OF EXHIBITS
3.1(1) - Restated Articles of Incorporation
3.2(2) - By-laws, as amended
10.1(3) - Lease Agreement dated January 8, 1992 between
the Registrant and East Bay Associates
Partnership No. 3
10.2 - Form of Employment Agreement between the
Registrant and its executive officers together
with a schedule identifying the agreements
omitted and setting forth the material
differences between the filed agreement and
the omitted agreements
10.3(4) - 1990 Long-Term Incentive Compensation Plan
10.4(4) - Form of Stock Option Agreement (1990 Long-Term
Incentive Compensation Plan)
10.5(5) - Executive Loan Program
10.6(5) - Exempt Employee Incentive Compensation Plan
10.7(6) - 1993 Stock Option Plan
10.8(6) - Forms of Stock Option Agreements for employees
and non-employee directors (1993 Stock Option
Plan)
22 - List of Subsidiaries of Registrant
24 - Consent of Independent Public Accountants
27- Financial Data Schedules
29
<PAGE>
(b) REPORTS ON FORM 8-K
The Registrant did not file any reports on Form 8-K during the last
quarter of the year ended December 31, 1994.
(c) EXHIBITS
Exhibits required to be filed in respect to this paragraph of Item
14 are listed above in subparagraph (a)(3).
(d) FINANCIAL STATEMENT SCHEDULES
See subparagraph (a)(2) above.
____________
[1] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1988 and is incorporated herein
by reference.
[2] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1985 and is incorporated herein
by reference.
[3] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1991 and is incorporated herein
by reference.
[4] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1990 and is incorporated herein
by reference.
[5] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1992 and is incorporated herein
by reference.
[6] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1993 and is incorporated herein
by reference.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Nature's Sunshine Products, Inc.
(Registrant)
Date: March 24, 1995 By: /s/ Alan D. Kennedy
---------------------------
Alan D. Kennedy, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Alan D. Kennedy President, Chief Executive March 24, 1995
- ------------------------ Officer and Director
Alan D. Kennedy
/s/ Kristine F. Hughes Chairman of the Board and March 24, 1995
- ------------------------ Director
Kristine F. Hughes
/s/ Douglas Faggioli Vice President/Finance, March 24, 1995
- ------------------------ Treasurer, Chief Financial
Douglas Faggioli Officer
/s/ Eugene L. Hughes Vice President and Director March 24, 1995
- ------------------------
Eugene L. Hughes
/s/ Merrill Gappmayer Director March 24, 1995
- ------------------------
Merrill Gappmayer
/s/ Pauline T. Hughes Director March 24, 1995
- ------------------------
Pauline T. Hughes
31
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
To Nature's Sunshine Products, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Nature's Sunshine Products, Inc. appearing
in Item 8 in this Annual Report on Form 10-K, and have issued our report thereon
dated February 14, 1995. Our audit was made for the purpose of forming an
opinion on those statements taken as a whole. The schedule listed in Item
14(a)(2) is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
February 14, 1995
32
<PAGE>
NATURE'S SUNSHINE PRODUCTS, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING AMOUNTS AMOUNTS END OF
DESCRIPTION OF PERIOD PROVISIONS WRITTEN OFF RECOVERED PERIOD
----------- --------- ---------- ----------- --------- ------
YEAR ENDED DECEMBER 31, 1992
- ----------------------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE $134,960 $99,623 $(121,833) $(1,000) $111,750
ALLOWANCE FOR OBSOLETE INVENTORY 218,894 87,465 --- --- 306,359
ALLOWANCE FOR NOTES RECEIVABLE 95,000 --- (85,000) (10,000) ---
YEAR ENDED DECEMBER 31, 1993
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE $111,750 $279,946 $(128,027) $(3,621) $260,048
ALLOWANCE FOR OBSOLETE INVENTORY 306,359 (25,032) --- --- 281,327
ALLOWANCE FOR NOTES RECEIVABLE --- --- --- --- ---
YEAR ENDED DECEMBER 31, 1994
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE $260,048 $839,232 $(460,921) $(2,414) $635,945
ALLOWANCE FOR OBSOLETE INVENTORY 281,327 --- (77,913) (89,429) 113,985
ALLOWANCE FOR NOTES RECEIVABLE --- 304,086 --- --- 304,086
</TABLE>
33
<PAGE>
LIST OF EXHIBITS
<TABLE>
<CAPTION>
LOCATED AT
SEQUENTIALLY
ITEM NO. EXHIBIT NUMBERED PAGE
- -------- ------- -------------
<S> <C> <C>
3.1(1) - Restated Articles of Incorporation ---
3.2(2) - By-laws, as amended ---
10.1(3) - Lease Agreement dated January 8, 1992 between the ---
Registrant and East Bay Associates Partnership No. 3
10.2 - Form of Employment Agreement between the Registrant and 35
its executive officers together with a schedule identifying the
agreements omitted and setting forth the material differences
between the filed agreement and the omitted agreements.
10.3(4) - 1990 Long-Term Incentive Compensation Plan ---
10.4(4) - Form of Stock Option Agreement (1990 Long-Term Incentive ---
Compensation Plan)
10.5(5) - Executive Loan Program ---
10.6(5) - Exempt Employee Incentive Compensation Plan ---
10.7(6) - 1993 Stock Option Plan ---
10.8(6) - Forms of Stock Option Agreements for employees and ---
non-employee directors (1993 Stock Option Plan)
22 - List of Subsidiaries of Registrant 42
24 - Consent of Independent Public Accountants 43
27 - Financial Data Schedules ---
<FN>
____________
[1] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1988 and is incorporated herein
by reference.
[2] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1985 and is incorporated herein
by reference.
[3] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1991 and is incorporated herein
by reference.
[4] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1990 and is incorporated herein
by reference.
[5] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1992 and is incorporated herein
by reference.
[6] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1993 and is incorporated herein
by reference.
</TABLE>
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Agreement, is effective as of the 1st day of November, 1994 (the "Effective
Date"), and is by and between NATURE'S SUNSHINE PRODUCTS, INC., a Utah
Corporation, having its principal place of business in Provo, Utah ("NSP"), and
ALVIN B. SEGELMAN the undersigned individual ("Employee").
RECITALS
WHEREAS, NSP is in the business of (i) manufacturing and selling numerous
consumer products and services, including but not limited to herbs, vitamins,
minerals, health foods, food supplements, skin care products and other health-
related products, and (ii) distribution of products and services by the method
of multilevel marketing/direct sales distribution;
WHEREAS, Employee has been employed by NSP since SEPTEMBER 17, 1990 and
WHEREAS, both NSP and Employee desire to embody the terms and conditions of
Employee's employment in a written agreement which shall supersede and revoke
any and all prior agreements of employment, whether written or oral.
NOW, THEREFORE, in consideration of the mutual agreements herein contained, the
parties hereby agree as follows:
GENERAL PROVISIONS
1. EMPLOYMENT: NSP hereby employs Employee and Employee hereby agrees to
serve NSP as VICE PRESIDENT-HEALTH SCIENCES. Employee shall devote
Employee's full time and efforts to NSP during the term of Employee's
employment and shall act with complete loyalty to NSP.
NSP may assign Employee such additional or substitute titles and duties as
NSP shall determine in its sole discretion. Employee shall at all times
act in a professional manner. Employee shall perform the duties set forth
in Exhibit "A", attached hereto, and such other duties as NSP may specify,
in a competent and responsible manner and to NSP's reasonable satisfaction.
Employee agrees to abide by the policies and procedures as may be set forth
in handbooks, manuals and other materials provided by NSP.
2. TERM: The term of Employee's employment shall be twelve months, and shall
hereinafter be referred to as the "Initial Term." The Initial Term shall
begin as of the Effective Date. Unless and until Employee's employment
with NSP is terminated by NSP or Employee for any reason or no reason, at
the end of the Initial Term this Agreement shall automatically be renewed
and extended for additional periods of twelve months each and Employee's
employment with NSP shall continue during the extended period.
35
<PAGE>
3. COMPENSATION:
(a) BASE SALARY: As compensation, NSP shall pay Employee a base salary of
$108,000 per year ("Base Salary"). Base Salary shall be paid
according to NSP's payroll schedule.
(b) DISCRETIONARY BONUS: Employee shall also be eligible to participate
in the executive bonus program or any successor program (the "EBP").
Payment of any bonus under the EBP is in NSP's sole discretion
according to the then current practice and criteria established by
NSP.
(c) EMPLOYEE'S BENEFITS: Until Employee's employment is terminated,
Employee shall be entitled to all standard employee benefits then in
effect for employees of NSP holding comparable titles or positions
(the "Benefits").
4. TERMINATION:
(a) DISCRETIONARY TERMINATION BY NSP: NSP may terminate Employee's
employment at will, subject to this Agreement and NSP's obligation to
pay Severance Pay to Employee as provided in Section 5.
(b) DISCRETIONARY TERMINATION BY EMPLOYEE: Employee may terminate
Employee's employment by giving NSP at least two weeks' notice of said
resignation.
(c) TERMINATION FOR CAUSE BY NSP: Notwithstanding anything in this
Agreement, during the Initial Term and thereafter NSP may terminate
Employee's employment immediately for Cause. For purposes of this
Agreement, "Cause" shall include (i) material breach by Employee of
this Agreement, (ii) performance by Employee deemed unsatisfactory to
NSP acting reasonably, provided NSP's expectations for specific
improvement are communicated to Employee in writing with a ninety day
probation period allowed for the requisite improvement, (iii)
Employee's dishonesty or violation of company rules by Employee
including that certain Confidentiality Agreement by and between NSP
and Employee, or (iv) Employee's conviction of or entrance of a plea
of NOLO CONTENDERE to a felony or to any other crime punishable by
incarceration.
(d) TERMINATION UPON DEATH OR INCAPACITY OF EMPLOYEE: Employee's
employment with NSP shall, at the exclusive election of NSP, terminate
upon the death or Incapacity of Employee. For purposes of Sections 4
and 5, termination of Employee's employment by reason of Employee's
death or Incapacity shall be considered termination of Employee's
employment by NSP WITHOUT Cause and Employee shall receive the
Severance Pay, if any, pursuant to Section 5.
(e) DEFINITION OF INCAPACITY: In this Agreement, "Incapacity" shall mean
that Employee is for a period of 95 consecutive days or more, unable
to perform Employee's duties effectively, for reasons such as
emotional, mental or physical
36
<PAGE>
illness, deficiency or disability. In this Agreement, if any question
arises as to the "Incapacity" of Employee, NSP shall promptly engage
three physicians who are members of the American Medical Association
to examine Employee and determine if Employee is able to perform the
duties of Employee's employment with NSP. In the event Employee
appears to have mental capacity to act, one of said three physicians
shall be selected by Employee, one shall be selected by NSP, and one
shall be selected by the other two physicians. The decision of the
three physicians shall be conclusive for all purposes of this
Agreement.
5. EFFECT OF TERMINATION ON COMPENSATION:
(a) DISCRETIONARY TERMINATION BY NSP: If Employee's employment is
terminated by NSP WITHOUT CAUSE, Employee shall be entitled to receive
as severance pay ("Severance Pay") the following: (i) an amount equal
to Base Salary for the twelve (12)) months from the date of
termination (the "Severance Pay Period") and (ii) continuation of any
coverage in effect at the date of termination for Employee and his or
her family at NSP's expense under NSP's major medical and life
insurance plans during the Severance Pay Period.
(b) NON-RENEWAL BY NSP WITHOUT CAUSE; DEATH; INCAPACITY: If NSP WITHOUT
CAUSE does NOT renew Employee's employment at the end of the Initial
Term, or the end of any employment period thereafter, or if Employee's
employment is terminated by reason of Employee's death or Incapacity,
then Employee (or Employee's estate or designated beneficiary, as the
case may be) shall receive Severance Pay for the applicable Severance
Pay Period.
(c) TERMINATION BY EMPLOYEE; TERMINATION OR NON-RENEWAL BY NSP FOR CAUSE:
If Employee's employment is (i) terminated by Employee, or (ii)
terminated for Cause or for Cause not renewed by NSP, Employee shall
receive only Employee's Base Salary and the Benefits earned through
the date of such termination.
(d) PAYMENT: At the option of NSP, Severance Pay may be distributed in a
lump sum or in regular biweekly checks over the Severance Pay Period.
Any Severance Pay is subject to required payroll deductions and
withholdings.
(e) LIMITATION: Except as provided in this Section 5, Employee shall not
be entitled to any further or other Severance Pay, Base Salary,
Benefits, compensation, damages or other amounts. Employee
understands and agrees that notwithstanding anything in this
Agreement, NSP's obligation to pay any Base Salary, benefits or
Severance Pay after termination of employment depends upon Employee's
compliance with the agreements and covenants of Sections 6 through 9.
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, EMPLOYEE
SHALL NOT RECEIVE ANY HEALTH OR LIFE INSURANCE COVERAGE AFTER THE DATE
OF TERMINATION, EXCEPT COBRA BENEFITS, IF ANY, AS AND TO THE EXTENT
PRESCRIBED BY LAW.
37
<PAGE>
PROTECTION OF NSP
6. NONCOMPETITION AND NONSOLICITATION:
(a) DEFINITIONS: In this Section 6, the "Restricted Territory" shall mean
the United States and any country where (on the date the notice
terminating Employee's employment is received) NSP is doing business
or planning to do business within the next year through a subsidiary
or joint venture. In this Section 6, the "Restrictive Period" shall
mean the period (i) COMMENCING with the Effective Date, and (ii)
ENDING one year after the later of (x) the date of termination of
Employee's employment (whether or not employment is terminated by NSP
or Employee, or for Cause or otherwise), or (y) the date of final
payment of Severance Pay was paid to Employee (or would have been paid
but for a breach of this Agreement by Employee or for Cause
termination of Employee's employment).
(b) EMPLOYEE NONCOMPETITION AND NONSOLICITATION COVENANTS: Employee
hereby covenants and agrees that Employee shall not, directly or
indirectly, in the Restricted Territory during the Restricted Period,
do any of the following:
(i) own an interest in (other than less than one percent of a
publicly traded company), operate, join, control, participate
in or be a distributor, agent, consultant, independent
contractor, employee, officer, director, partner, principal or
shareholder of ANY INDIVIDUAL, PERSON OR ENTITY HAVING A
MAJORITY OF ITS GROSS SALES FROM DISTRIBUTION OF HERBS AND/OR
VITAMINS;
(ii) plan for or organize any business which competes or would
compete with ANY HERB OR VITAMIN PRODUCT OF NSP, or combine
with any other employee or representative of NSP to organize
any such competitive business;
(iii) solicit, induce or influence (or seek to induce or influence)
any person under contract with NSP (including any associate or
distributor of NSP) to terminate or alter his or her
relationship with NSP; or
(iv) solicit any customer of NSP where the identity or any
significant information about such customer was or is
Confidential Information of NSP (as such term is defined in
that certain Confidentiality Agreement by and between Employee
and NSP).
(c) EXTENSION OF RESTRICTIVE PERIOD: Employee agrees that NSP, in its
sole discretion, may extend the Restrictive Period and the foregoing
restrictive covenants in Section 6(b) for up to an additional year.
To do so, NSP must (i) give Employee at least ninety days prior notice
of its intention to extend the restrictive covenant, and (ii) pay
Employee an amount equal to the Base Salary for and during the period
of such extension. Any such payments shall be paid according to NSP's
regular payroll schedule.
38
<PAGE>
(d) INTENTIONS: It is the intention of the parties that the foregoing
restrictive covenant be enforced as written, and, in any other event,
enforced to the greatest extent (but to no greater extent) in time,
territory and degree of participation as permitted by applicable law.
7. NON-DISPARAGEMENT: Employee hereby also covenants not to disparage, orally
or in writing, NSP or its management (including NSP's products, practices
and policies) to any NSP employee, associate, distributor or member of the
public or press. Employee understands and agrees that Employee may lose
any right to Severance Pay if Employee breaches this covenant not to
disparage.
8. ACKNOWLEDGEMENT: Employee acknowledges that Employee's covenants and
agreements in Sections 6 and 7 are reasonable and necessary to protect the
legitimate interests and Confidential Information of NSP. Employee
acknowledges that Section 6 is not so broad as to prevent Employee from
earning a livelihood or practicing Employee's chosen profession after
termination of Employee's employment. The parties acknowledge and agree
that the compensation and benefits provided for under this Agreement are in
substantial part consideration for Employee's covenants in Sections 6 and
7.
9. ENFORCEMENT: For any breach of Section 6, 7, 8 or 9, Employee agrees that
NSP is entitled to equitable and other injunctive relief which may include,
but shall not be limited to restraining Employee from rendering any service
or performing or participating in any activity in breach of this Agreement.
However, no remedy available under this Agreement (including this Section
9) is intended to be exclusive of any other remedy, and each and every
remedy shall be cumulative and shall be in addition to every other
available remedy or now hereafter existing at law or in equity, by statute
or otherwise.
MISCELLANEOUS
10. ENTIRE AGREEMENT: This Agreement (including the recitals and Exhibit "A",
attached hereto) sets forth the entire agreement and understanding between
Employee and NSP and cannot be modified or altered, nor can any provision
hereof be waived, except in writing signed by Employee and a duly
authorized officer of NSP.
11. INTERPRETATION: The Section and other headings in this Agreement are for
reference only and shall not affect the construction of this Agreement.
Whenever the context requires, the singular shall include the plural, the
plural shall include the singular, and the whole shall include any part
thereof.
12. INVALIDITY OF PROVISION: If any provisions in this Agreement are held
invalid, illegal or unenforceable in any respect for any reason, such
invalid, illegal or unenforceable provision(s) shall be limited, construed
or eliminated to the extent necessary to remove such invalidity, illegality
or unenforceability and the other provisions of this Agreement shall not be
affected thereby.
39
<PAGE>
13. BINDING EFFECT: This Agreement shall inure to the benefit of and be
binding upon Employee and Employee's heirs and personal representatives,
and upon NSP and its successors and assigns. Employee's covenants and
agreements of Sections 6 through 9 shall survive the termination of
Employee's employment by any means, reason or party.
14. WAIVER: No waiver of any provision of this Agreement shall constitute a
waiver of any other provision, whether or not similar, nor shall any waiver
constitute a continuing waiver.
15. NOTICE: Any notice given under this Agreement shall be in writing and
shall be sufficient if personally delivered or sent by registered or
certified mail and addressed, if to Employee, to Employee's address set
forth in NSP's records, or if to NSP, to its principal office. Such notice
shall be deemed given when delivered if delivered personally, or, if sent
by registered or certified mail, at the earlier of actual receipt or three
days after mailing in United States mail, addressed as aforesaid with
postage prepaid.
16. GOVERNING LAW: This Agreement shall be governed by the laws of the State
of Utah and any litigation arising out of it shall be conducted in
applicable state courts located in Utah County or federal courts located in
Salt Lake County, Utah. The parties expressly consent to such jurisdiction
and venue.
AGREED TO AND ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN:
Employee: Employer:
ALVIN B. SEGELMAN NATURE'S SUNSHINE PRODUCTS, INC.
___________________________________ By __________________________________
Signature
Name ________________________________
Title _______________________________
40
<PAGE>
SCHEDULE TO EXHIBIT 10.2
The following sets forth the material differences between the filed agreement
and the omitted agreements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NAME POSITION SALARY TERM
- --------------------------------------------------------------------------------
Alan D. Kennedy President & C.E.O. $250,000 1 year
- --------------------------------------------------------------------------------
Brent F. Ashworth Vice President - Legal 100,200 1 year
- --------------------------------------------------------------------------------
Alvin B. Segelman Vice President - Health 108,000 1 year
(FILED EXHIBIT) Sciences
- --------------------------------------------------------------------------------
Eugene Hughes Senior Vice President 125,500 1 year
- --------------------------------------------------------------------------------
Dale G. Lee Vice President - Sales 116,000 1 year
- --------------------------------------------------------------------------------
Bruno Vassel III Vice President - 96,000 1 year
Human Resources
- --------------------------------------------------------------------------------
Joseph A. Speirs Vice President - 104,500 1 year
Marketing
- --------------------------------------------------------------------------------
William E. Spears Chief Operating 150,000 1 year
Officer
- --------------------------------------------------------------------------------
Dilip G. Bhatia Vice President - 100,000 1 year
R & D/Q.A.
- --------------------------------------------------------------------------------
David K. Shunick Vice President - 100,000 1 year
Operations
- --------------------------------------------------------------------------------
Douglas Faggioli Vice President - 123,500 1 year
Finance, Chief
Financial Officer
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 22
SUBSIDIARIES
Set forth below is a list of all active subsidiaries of the Registrant, the
state or other jurisdiction of incorporation or organization of each, and the
names under which such subsidiaries do business.
Jurisdiction of
Name Incorporation
---- ----------------
Nature's Sunshine Products of Canada, Ltd. Canada
Nature's Sunshine Products de Mexico, S.A. de C.V. Mexico
Nature's Sunshine Products de Colombia, S.A. Colombia
NSSP Malaysia Sdn. Bhd. Malaysia
Nature's Sunshine Produtos Naturais Ltda. Brazil
Nature's Sunshine K.K. Japan
Nature's Sunshine Products de Venezuela Venezuela
Nature's Sunshine Products de Centroamerica Costa Rica
_____________________________
Each subsidiary listed above is doing business under
its corporate name.
<PAGE>
EXHIBIT 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statements File Nos. 33-38621 and 33-80582.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
March 28, 1995
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<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 11,200,550
<SECURITIES> 0
<RECEIVABLES> 4,787,333
<ALLOWANCES> 636,000
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